EUC Report: EU Sugar Regime
That the Grand Committee takes note of the report of the European Union Committee, Leaving a Bitter Taste?: The EU Sugar Regime.
My Lords, I chaired Sub-Committee D—the sub-committee on agriculture, fisheries, environment and energy—when this report was produced last year. Sadly I have now stepped down from that position, but happily I have passed the baton to the very able hands of the noble Baroness, Lady Scott of Needham Market.
Before moving on to the detail of our report, I want to deal with a procedural matter. We published our report in September last year. A response was received quite promptly from the European Commission in March. Despite repeated prompting, though, we received a response from the Government only last Wednesday, almost seven months late, and I suspect it may only have been the pressure of today’s debate that produced it at all. Members will know that receipt of a government response three working days before a debate, and during recess, does not provide ample time for preparation for a parliamentary debate.
We recognise the challenges of the last few months, which have seen the parameters of this debate shifting on a regular basis as the common agricultural policy negotiations have progressed, but the lack of communication from the Government during that process has been lamentable. We trust that there will be no repeat of this disregard of Parliament in future.
I turn to the substance of today’s debate. The EU sugar regime might sound like a very niche, distinct and rather arcane area. However, it has widespread implications. The first is that sugar remains one of the most protected sectors under a CAP that in other respects has slowly made progress towards a more liberal regime. Secondly, like it or not, we all consume sugar and it is our contention that we, as consumers, pay more than we should as a direct result of EU policy. Thirdly, the regime also has significant implications for developing countries, and I shall come back to that point.
At the time of most of the reform of the sugar regime in 2005, we undertook an inquiry and welcomed that reform as a necessary step, although even then we regretted that more extensive proposals had not been pursued. Since then there have been critical reviews of the regime, not least by the EU’s Court of Auditors. Indeed, in 2011 the European Commission tried to identify some of these shortcomings in its proposals to reform the common agricultural policy. For that reason, we decided to undertake a short inquiry into this subject last spring as part of our contribution to the debate on the reform of the CAP, knowing that the future of the EU’s sugar regime would be a closely fought tussle in those negotiations. We were also keen to ensure continuity and follow up on our earlier report.
I turn first to quotas. The EU’s sugar policy is not something of which we can be proud—in fact, it is not sweet, it is rather bitter. It is still a policy that restricts both the production of beet sugar in the EU and the import of cane sugar from third countries into the EU. Changes made in 2006 have ensured that the EU’s minimum price is there, yet we do not have a guaranteed minimum price. That is a rather contradictory position.
There was a clear division of opinion among our witnesses as to when, and even if, production quotas should be abolished. Some argued for an extension of the system until 2020 in order to allow the sugar beet industry to restructure further and prepare itself for the onset of the world market. Others—quite logically, those on the receiving end of an uncompetitive market—argued for the immediate end to quotas. This included the industrial users of sugar, such as manufacturers and producers of confectionery products and the like.
However, that final grouping also included the importers of raw cane into the EU for refining, specifically Tate & Lyle. Their position was that either they should be protected against the market or both the beet and cane sectors should be liberalised—a logical position. We took the view that neither the cane nor the beet sectors should continue to be protected and that this would involve both the abolition of production quotas and the easing of import tariffs on raw cane sugar. We acknowledged the difficulties of negotiating this, but suggested that in the event that production quotas could not be phased out by 2020, they should certainly end at some point between 2015 and 2020.
It is pleasing to note in the Minister’s response that the Council’s negotiating mandate extends quotas only until 2017, although that has to be negotiated finally with the European Parliament, which itself favours 2020. I would very much appreciate it if the Minister could share any further intelligence with us, including how the Government are working to ensure a positive outcome in this respect.
We also recommended that, as part of a package to assist with the negotiation over the ending of quotas, support should be available to remove inefficient production. Interestingly, the Government disagree, noting that there is no justification for the spending of such money. Let me be clear: we supported the use of such funding only as part of a compromise package. It is unclear to me, frankly, how the Minister expects to be able to negotiate the 2017 date without some form of financial compensation. I would welcome clarity on that subject.
I turn to the issue of price and competition. One consequence of the protected sugar industry is that costs to the consumer are higher than they should be. We were struck by the findings of the EU’s own auditors, the European Court of Auditors, which concluded in 2010 that changes in the EU market price for sugar were not passed on to the consumer. Between 2006 and 2012, the average price of a kilo of granulated sugar in the UK rose by one-third, while the market price increased by only 16%. Clearly there is a widening of margins somewhere.
We concluded that the consumer is the missing stakeholder from the debate on EU sugar policy. The Commission refuted that argument in its response to us, noting that:
“Consumers are consulted in the framework of the High Level Forum for a Better Functioning Food Supply Chain”.
That seems hardly a very consumer-focused body to us, so it is no surprise that we remain unconvinced about this.
The Government say that they have used every opportunity to raise awareness of the impact of this policy on consumers. I should be grateful if the Minister could tell us whether the Government’s work has influenced the course of negotiations on sugar, and indeed generally on the future of the common agricultural policy in any way.
We noted that this is a highly concentrated industry; as we heard, only six companies account for almost 80% of sugar production quotas. The European Competition Network, a network of national competition authorities and the European Commission, has been very critical of the concentrated nature of the industry. The Government confirm that the sector is in the spotlight and that the European Commission undertook an unannounced inspection on 23 April at the premises of companies active in the sugar industry in several member states.
The Commission noted in its response to us that it is conducting its own study into price transmission in the sugar sector, which I understand should be available imminently, and we are keen to see what it says. We are pleased to note that the UK’s Office of Fair Trading is assisting the Commission in its work. I urge the OFT and the Government to be very vigilant in this area.
Another issue that we are keen to see explored is risk management. We observed that most sugar producers are a risk-averse group, which is why they have a strong preference for continuing the protection available under the current regime. The reformed CAP contains some support for risk management, including support to help farms and groups of farms manage their own risk, making use of private sector insurance mechanisms. This is important; it is trying to make industries use the private sector instead of always relying on the state to somehow mutualise the risks that they face. This is a theme that we have referred to many times in our reports.
The Government are imprecise in their response about their preferences regarding risk management. I would welcome an update from the Minister on the state of play of risk management in the CAP negotiations and what the UK’s current priorities are for that aspect of the negotiation.
I want to focus on the importance to beet growers, in terms of managing their risk and in the light of the concentrated nature of the industry, of clarifying the relationship between beet producers—that is, the farmers—and processors such as British Sugar, Nordzucker, Suedzucker and all those big organisations. The proposals to reform the CAP insist that this relationship be covered by a written agreement but do not set out what should be included, which is in fact a step back from the status quo. The Commission insisted in its response that such detail can be set out later in secondary legislation. I would welcome an update from the Minister on where that debate has reached.
One of the recurring themes on our committee has been that of research. We emphasised in this case the importance of basic and applied research in sugar, supported by adequate knowledge transfer: that is, getting the research from the lab into the hands of farmers. We recommended that the Government assess whether research efforts in this industry are in line with the needs of consumers. The Government appear content that all necessary basic and applied research is being undertaken and is sufficiently funded. Sadly, we do not share the Government’s confidence on that matter. While we agree that the industry is particularly well placed to identify its needs, at least in terms of applied research, it is important that science is able to feed in basic research and to be financially supported in its efforts. It is only through this sort of research that we will maintain in Europe the lead in technology that we need to maintain our position in the world and in trade. There will inevitably be a tendency by industry to focus on low-hanging fruit, but I urge the Government to take a greater interest in this important part of the chain.
The African, Caribbean and Pacific bloc and the so-called least developed countries, the LDCs, have had preferential access to the EU’s sugar market and were therefore negatively affected by the reduction in the EU’s sugar price after the 2006 reform. A helpful package of transitional measures was put together, known by the lengthy name of Accompanying Measures for Sugar Protocol countries funding. We heard that almost €1.2 billion had been allocated to this, yet much of it had not reached the intended beneficiaries. This was due in part to insufficient resourcing in the Commission’s offices in those countries. It is very sad that the money was available but we could not find a way to spend it. That is clearly an issue for the Commission to address. I am glad that the Government similarly recognise the problem and that they will seek assurances from the Commission that local offices will be sufficiently resourced.
In evidence to us, we were favourably struck by the Minister’s condemnation of the plan for further reform, which in his view almost entirely ignored the needs of developing countries. He emphasised that the Government have an obligation to find ways to support them, and we support that.
It was surprising to note from the Government’s response that some progress had been made in negotiations on the European Development Fund. The response indicates that funding available to many of the sugar-producing developing countries will support interventions that have the most impact on the critical areas of poverty reduction, job creation and economic growth.
These developments are helpful and important, but I would caution against any complacency. We have had seven years of little action on this, and I urge the Government to ensure that they are assiduous in their work with the Commission on monitoring the effect of the new reform and ensuring that the money that has been allocated gets spent.
I have spoken today on behalf of the committee and I pay tribute to its members, whose engagement with this subject gave our inquiry both energy and effect. I also pay tribute to our clerk of the committee, Kate Meanwell, and to Alistair Dillon, our researcher, both of whose endeavours on our behalf made us better informed and better able to produce this report.
The common agricultural policy continues to be reformed, albeit slowly. It is extremely disappointing that there are sectors within it, such as sugar, that proceed at such a glacial pace along that path. Certain industrial concerns dominate while the interests of consumers and developing countries are virtually ignored. This is not a situation that we should tolerate, and I look forward to hearing from the Minister how the Government’s attempts to promote reform are bearing fruit in Brussels. I beg to move.
My Lords, I thank the noble Lord, Lord Carter of Coles, for introducing the debate. I thank him for having chaired our committee for several Sessions. As he said, he is now handing over to the noble Baroness, Lady Scott of Needham Market, and we welcome her. The noble Lord has done a wonderful job for us on several reports.
My family’s farming interests meant that I had to withdraw from—or, I would rather say, did not take part in—this report. On our farm in Suffolk we grow about 100 acres of sugar beet. I therefore felt that it was not correct to take part in the report. I have not had the advantage of listening to the evidence given, so I am looking at this from a slightly different point of view. However, I was shadow Minister at the time when we debated the earlier reports, and I re-emphasise the frustration that the noble Lord, Lord Carter, has described that things move very slowly with regard to sugar reform. It reminded me of the occasions when we had reports from EU Sub-Committee D on fisheries. We were talking constantly about discards but for month after month and year after year nothing seemed to be done. However, to encourage us, at least that has now made a start and I hope that today’s debate will move things forward. To some extent, I have read the report from an outsider’s point of view, but before I go further I apologise to Members of the Committee if my words take them over a trail they have already travelled.
The report, Leaving a bitter taste?, was published in response to the many questions raised by the 2006 report. If it had been a direct response to the plight of the least developed countries to which the noble Lord has spoken, particularly those in the Caribbean, I would have applauded it even more than I am able to applaud it today. I share the frustration. For many years we have looked at what we could do to help our colleagues in those countries but, as we have heard, not much progress has been made.
The figures from the FOA quoted two weeks ago in the “Food Programme” on the radio showed that white sugar consumption per head per annum averages 12 kilograms in China, 27 kilograms in the UK, 33 kilograms across Europe and 25 kilograms globally. Assuming that we are moving towards a world population of 7 billion, that means that a world white sugar market of 175 million tonnes is likely in the future. Clearly we want to free up this market so that it can fulfil its role.
I am a little disappointed that we still have problems some seven years after the 2006 changes. These were highlighted in paragraph 12 of the report and were driven by the WTO ruling that the EU was subsidising its sugar exports by guaranteeing producers prices above world levels. As the noble Lord, Lord Carter, said, it is the most protective regime in existence.
Paragraph 13 summarises the effects that the regime change has across Europe. Here in the UK, prices for sugar beet fell, production was reduced and a number of processing factories have closed. The anticipated rise in raw sugar imports for refining did not happen. The beet processors built refining capacity, and I understand that Mauritius has started a refining industry. The outcome is a UK refining industry reportedly running at 60% capacity. The EU reference price has been brought down but the current market price for white sugar is some 16% higher than it was in July 2006. As a consumer, my observation of local shops is that the price is a further 13% or so above the market price in those days.
Surely the combination of sugar beet production quotas and the tariffs charged on raw cane and refined sugar can only be acting to keep the consumer price up, which I am sure we do not want to see. If you take another view, that might not be a bad thing in the light of the research findings on the damage done to our health by sugar consumption. I wish, however, that the arguments for the retention of tariffs and quotas were not put in a way that makes me think of the protection of EU income coming from the former and the benefits to France and Germany from the latter.
Having said that, however, I remember that Janet Young on many occasions introduced dinner debates in the House on the way in which we could help the ACP and less developed countries. She continually drew our attention to those former Commonwealth countries whose livelihoods depend almost entirely on raw cane, coconut and bananas. Following on from the questions of the noble Lord, Lord Carter, in that context, I would like to ask the Minister which countries have received transitional assistance, whether it has all been dispersed, and whether he is able to tell us how it has been spent. The noble Lord mentioned that there were not enough personnel to make this happen, but I wonder whether there is a broader picture to follow here.
In the event that further assistance is required, I am convinced that, whatever happens in the future, there must be a time limit on sugar quotas and a date set now to help prevent the manipulation of the market in future.
Surely China’s per-head consumption will continue to rise over the next decade, and the question has to be how the ACP countries and the less developed country producers could be helped to take advantage of the situation while making clear that this will be a short-term help and that they will have to stand on their own in future years. I am not quite clear from the report, not having heard the evidence, what it really is that is stopping the ACP countries from being able to process and develop, or whether they are continuing just to export their raw materials. If that is so, what steps could be put in place to help them to add value to their initial crop?
Here in the UK, farmers have grown beet for many years, with 50% of the sugar that we use coming from sugar beet that we have produced. With the CAP negotiations well under way, I would like to add to what the noble Lord, Lord Carter, has mentioned, that the CAP is looking at ways in which farmers will be encouraged to spread their crop production—in other words, not just wheat, rape and barley. In fact, for many farmers sugar beet is a good crop break because it puts goodness back into the ground, so from a cereal farmer’s point of view it is an important break. At the end of the day, however, it will be important that whoever produces the sugar, whether beet or cane, can make sufficient money out of it or they will not continue to grow it. In this country and in Europe, they will grow something else. Again, though, that is not a possibility for the ACP countries.
I understand that the market price for white sugar is something like €710, which is roughly £600 per tonne or 60p per kilo. Prices paid to farmers vary, but somewhere between £28 or £30 per tonne should be possible to obtain. That is 3p per kilo, and my observed off-the-shelf price to the consumer is about 79p per kilo. Does this perhaps ring a similarity with what happens with our dairy farmers across Europe? The question has to be: what is the reason for the price rising so much for the consumer while the actual producers of the cane and sugar beet have not grown? Changes to bagging and distribution and to the retail technology should surely have managed to counterbalance some of the rises that will have occurred, especially perhaps within fuel. Maybe the Minister can throw some light on the situation.
Both the report and the Government’s response make reference to inefficient production. That makes my mind wonder what is inefficient. Is it the growers, the producers or the people at the other end? Perhaps the Minister can tell us a little more about that—whether it is on the growing, the refining or the processing side, and which countries it occurs in the most, because we are looking across the whole of Europe.
I endorse the committee’s recommendation as laid out in paragraph 33, although I do not put out too much hope for an agreement in recognising the changes that were made before 2006 being taken forward.
The report is very worthy and goes into quite a bit of detail. However, to me, there are three real issues: first, the whole question of quotas and import restrictions; secondly, the ACP countries; and, thirdly, the CAP and where we are going in future years. I have had briefings, as perhaps have other noble Lords, from the UK Industrial Sugar Users Group, which has highlighted the need for wide-ranging reform of the EU sugar regime without delay. It goes on to suggest in that briefing:
“The competitiveness of manufacturers of products containing sugar is severely impacted by existing EU sugar policy”.
We should bear in mind that this is a huge sector that employs about 70,000 people, with a turnover of more than £12.3 billion, accounting for about 70% of the sugar usage in the UK. A little further on, it says:
“The mistake is graver because the maintenance of sugar quotas will not benefit European farmers and the EU sugar sector overall either: shortage of domestic supply, growing global demand and rising world prices are opportunities that European farmers and sugar processors can exploit if the production and export restrictions that the quota system imposes are removed”.
I have tried not to view it from a producer’s point of view but there are clearly things that the report identified very specifically, which I would like to highlight and reflect in this short contribution. I thank the noble Lord, Lord Carter, again for initiating the debate.
My Lords, I, too, thank the noble Lord, Lord Carter, for introducing this debate, which is very timely considering the negotiations that are going on with the reform of the common agricultural policy in Brussels and elsewhere. I have found it a huge privilege to serve on the committee for a number of years. My time is up and I have now moved on, but it has been a great pleasure working under the noble Lord’s chairmanship. His fairness both to us as members of the committee and to those whom we interviewed became one of his hallmarks.
One of the other hallmarks of his chairmanship was the noticeable improvement in Defra’s communication with the committee, which has now come to a grinding halt with this report. It is extraordinary that I received notification that the government reply had finally been received, after numerous requests from our clerk and endless telephone conversations, when I was in Romania last week. It is a wonderful place. It used to be a communist country and grows its own sugar. I managed to ask some of the farmers there what they considered would be an appropriate response, and I can tell my noble friend Lord De Mauley that his officials would all get promoted under the communist regime. The farmers felt that the bureaucratic system that they endured was nothing compared to what we are enduring in this country at the moment.
I really hope that my noble friend will get a grip on his officials. It is treating Parliament and the committee with contempt that we did not get a reply for nine months. Even the European Commission got its reply in during March. Perhaps my noble friend will take the message back to his department and ask his Secretary of State to write to the Leader of the House and apologise for what has happened.
Much that I wanted to say has already been said, which is a great relief and one of the advantages of talking in the House of Lords. I will concentrate on two points. One is paragraph 31 in our report, where we rowed behind the UK Government’s position that quotas must be abolished in 2015 and import tariffs on raw cane sugar eased. However, the game has changed. The Government have already agreed, as I understand it, to support the Commission in relaxing the date for the abolition of quotas from 2015 to 2017. Why did the Government do that? Why did my noble friend’s department move the goalposts in the middle of the CAP negotiations? What did we get for it? There has been a huge protectionist influence on the sugar regime, as was pointed out by the noble Lord, Lord Carter, and my noble friend Lady Byford, and yet we have already given way on this. It seems ludicrous to me; if there is a good explanation perhaps my noble friend could tell us.
On the points raised by the noble Lord, Lord Carter, on consumers, I thought that the Commission’s reply from Vice-President Šefcovic was perhaps a little arrogant, complacent and offhand towards the work of the committee. He was very dismissive of some of the suggestions that we put forward for the Commission. The noble Lord quite rightly highlighted the fact that precious little had been done on working with consumers, who, at the end of the day, are the ones who pay the bills. Have the results that were expected in February 2013 on the EEC study come in yet, and what are they?
In his letter, the vice-president states that the EU will undertake that in future, when the regime continues, the EU sugar growers and the EU sugar undertakings should have mandatory written contracts. I would be grateful if my noble friend could comment on that, on whether the Government find that acceptable and in what form those contracts will be.
The presence of my noble friend Lady Byford was hugely missed on the committee. It is one of the sadnesses of the ways in which some of our rules are interpreted that she could not take part. Her knowledge as a farmer and beet grower would have been immensely useful. She highlighted the briefing that we have received from the UK Industrial Sugar Users Group. I found that particularly interesting because it updates the graph in our report at figure 1 on page 11. It highlights how, since 2006, the EU sugar regime has failed. In July 2006, the EU average price for white sugar was 75% above the world market price in London and for a brief period in 2010 and 2011 they were about level. Then there was a coming and a going, but the work that had been undertaken and the falls that occurred started to work.
Since then, things have gone seriously wrong and the gap between the world sugar price and the EU reference price has increased from 75% to about 90%. That surely underlines the need for comprehensive reform of the sugar market. Unfortunately, it is already clear that that will not happen. The protectionist elements in Europe—other member states—are winning the battle. Employment opportunities in this country that are currently available will be in jeopardy unless significant reforms are undertaken. The industrial sugar market accounts for 70,000 people, with a turnover of about £12.3 billion, and that accounts for 70% of the sugar usage in the UK. It must be to our farmers’ advantage, to our employment advantage and more particularly to the consumer’s advantage that sugar is moved forward. Instead of it being a bitter pill, it should become a sweet pill.
My Lords, I am another member of the sub-committee which co-authored the report, and I, too, thank the noble Lord, Lord Carter of Coles, for introducing this debate and for being such an excellent chairman. When I came into the House, less than three years ago, I was pretty much a new girl in the committee. The noble Lord was nothing other than welcoming to me and ensured that all of us had our voices heard—those of us who are producers and those of us who are concerned about consumers and animal welfare. He has had a fantastic manner throughout, which has been to the benefit of the committee and its work. I am grateful to have the opportunity to put my thanks for that in Hansard. We welcome Ros but I am very grateful to Patrick.
A key outcome of any sugar reform should be to ensure that consumers pay a fair price. That is, fair in there being good reason to justify any product support—in this case, by the CAP—that they pay through their taxes; fair in terms of the price at the till; and fair in pricing and the externalities of the product, which in sugar’s case is its impact on human health.
I commend our chairman for the timely production of the report, if not the Government for their less than timely response. The report contributes to the debate on the reform of the common agricultural policy and, in so doing, addresses the first two of those issues about fairness of price. It supports, as do the Government, a vision of a more market-oriented agriculture where taxpayers’ money, distributed through the CAP, is used for rural development and environmental outcomes which help to build resilience to the impact of climate change and halt biodiversity loss.
It concludes that past reforms failed to bring the price down for the consumer at the supermarket and that there are insufficient good reasons to continue sugar production support. Following past reforms, as fellow committee members have highlighted, the EU price of sugar fell, but savings did not get into consumers’ pockets. That is unacceptable, but nothing in the current reform process looks as though that is set to change.
Like the noble Lord, Lord Carter of Coles, I would like to hear the Minister’s current assessment of the likelihood of the sugar quota slithering on, as the Secretary of State so eloquently put it when he addressed our committee on 15 May. What are the chances of a reasonable timeframe in which to abolish it being adopted, or will it be dragged, aided by the European Parliament, into the next round of CAP reform?
That failure to deliver lower costs for consumers in a market with few significant operators needs a spotlight shone on it. I therefore endorse the report’s call for an investigation by the Office of Fair Trading, in collaboration with competition regulators in other EU member states, to assess the extent to which sugar consumers are getting a fair deal. In the Government’s reply to the report, they highlight what the EU competition authorities and the OFT have been doing about suspected anti-competitive practices. I look forward to hearing from my noble friend whether he thinks that what they are doing is enough or whether he supports the report’s call for a full investigation of the sector.
The report reflects the strong views from the health sector that sugar is a health hazard for consumers, particularly for children, but it concludes—rightly, I think—that the control of sugar consumption on health grounds should be achieved by member state taxation and regulation policies rather than justifying EU-level continuation of market distortion.
In the face of the growing obesity challenge that this country faces, “nudging” consumers to adopt healthier lifestyles cannot deliver the pace of change required. The idea of the Government intervening to change people’s behaviour will often be controversial, but it should not be discounted when failure to do so is having adverse societal and environmental impacts and when there is clear evidence to show that such measures could work. The House of Lords Science and Technology Committee report on behavioural change in 2011 made that case very strongly.
Taxing foodstuffs such as sugar, which can cause health problems by contributing to our rising obesity epidemic—which is particularly alarming among young people—should now be actively looked at as a means to help consumers to make more positive food and drink choices. Taxing foodstuffs has become more prevalent in fellow European states over recent years. France, for example, has introduced a tax on sugary drinks.
Current CAP reform discussions show that the Government may not be able to secure support for the recommendations of the report, but it is within their power to launch a consultation on fiscal incentives and their potential to promote healthier lifestyles. Do the Government intend to do so and to ensure that consumers pay a truly fair price for sugar?
My Lords, I rise to speak very briefly in the gap. Having served in several Sessions on Sub-Committee D, I re-emphasise the point made by the noble Lord, Lord Carter: it really is a scandal that this report has taken so long to be debated. I feel very strongly that it is an insult to the members of the committee, knowing how much they have to work, read papers and so on. There was one such occasion when I was on the sub-committee when it was more than a year after our report was published that it was finally debated. I want to put this on the record. I think it is a scandal.
My Lords, I, too, congratulate my noble friend Lord Carter on introducing this debate. I think that I am the first to speak in this debate who is not a member of the committee, so I congratulate the committee as a whole on an excellent and concise report, which has been mirrored by this debate. I, too, aspire to be both excellent and concise in making my comments now, though I feel somewhat more confident in one than the other. I will leave it up to the Committee to judge which.
The EU sugar regime is impossible to defend, and I am pleased that no one has sought to do so today. Coming to this fresh, it is difficult for me to think of a worse example of the problems of the common agricultural policy and the need rapidly to reform away from the legacy policy enshrined in this regime.
In trying to understand EU matters, it is always easy to get bogged down in jargon. When I read the response from the vice-president to the committee, I was reminded of some of those problems. The noble Baroness, Lady Byford, read out a particularly interesting section on how consumers might be able to engage with the High Level Forum for a Better Functioning Food Supply Chain. It goes on,
“In this context, consumer organisations have supported the work done under the B2B platform of the High Level Forum”—
blah blah; it is a lot of euro-babble. I would therefore like to think how I would explain it to a lay person. What would I say? This is an attempt, based on my efforts to understand the regime.
It was established 45 years ago as a Common Market organisation to protect producers of sugar. It does so, as I understand it, by using taxpayers’ money to pay a direct subsidy to producers and by setting a minimum price paid to producers by sugar factories. At the same time, we are also subsidising some of these farmers through rural development grants—and this is to produce a product that we know is unhealthy, leading to obesity and with some links to cancer.
Having then interfered with the market once, we are then locked into a spiral of constant, costly market interference. To prevent overproduction in response to the generous price, and to in some way control the cost, there are then quotas to set a limit on production. Production in excess of the quota is known as out-of-quota sugar and strict rules then govern its use. It can be exported up to another limit, sold for biofuel or other industrial non-food uses, or be counted against the following year’s quota of sugar. The quotas can be varied to try to keep up with changes in the amount of sugar that people want to buy.
So far so good, in terms of the story, but of course it does not end there, because some of the poorest countries in the world grow sugar cane. Although we know that those countries would be better off if they refined it themselves, we like to import it and refine it here. Indeed, when our beet production was limited, some of our refiners adapted to refine cane sugar themselves as well. So, we give free access to preferred poorer countries to fill the gap between what we allow ourselves to produce and what we need. Fair enough— as the noble Baroness, Lady Byford, reminds us, these countries need the help—but they get it on our terms.
However, it seems that the Commission is very bad at giving extra money to help those countries produce the cane sugar we need, so we have to make up the shortfall, which we do by importing from other countries, rather than, say, allowing ourselves to produce some more. We sometimes pay our beet producers to store some sugar so we can release it on to the market to make up for shortfall, but we are normally too slow to do this because the Commission is not proving that good at responding quickly.
I may have misunderstood some of the detail but that appears to be the story from my reading today. It is a story that could have been written by the most swivel-eyed of Eurosceptics. It is madness and needs to change. At no point are consumers accounted for and, despite all this public money, consumers are paying a lot more for sugar, as the noble Baroness, Lady Byford, set out so well.
Of course, it is easier to say what is wrong with the system than how we get from where we are now to a market-based system. I welcome the committee’s report, which is sensible and discusses the risks for ACP and LDC countries as well as others in the industry of changing too fast. I also welcome the Government’s response, although I note the comments of my noble friend Lord Carter and others who have spoken on the unacceptable lateness of that response. I also agree that the response on research appears a little complacent. However, we are all broadly in agreement.
My position on the main specific issues is that quotas are outdated measures that create artificial shortages on the EU market, do not deliver supply to meet demand, drive prices up, affect consumers heavily, limit the functioning of the market and hinder farmers from adapting to market signals. They also hamper efficient producers and stop new entrants from joining the industry and helping to develop it. Therefore, as we have heard from the noble Earl, Lord Caithness, they should be abolished as soon as possible. I hope that the Government will find some friends on the Council and reject the Parliament’s proposal to delay from 2017 to 2020. I suspect that they will end up compromising on 2018. If so, I guess that I can live with that, provided that it is adhered to with no concessions to being subject to progress and such like, as argued by some MEPs.
On cane refiners, regardless of whether the quotas stay or are abolished, beet growers and cane refiners must be treated fairly. A mechanism could be introduced so that when it is clear that a refiner’s raw material needs cannot be supplied from the preferential countries or topped up from beet production, raw cane sugar from other sources would be made available at low or no import duty.
On developing countries, through the European Parliamentary Labour Party we are pushing the Commission to ensure measures to help mitigate the effects of abolition of the quotas, such as increasing competitiveness and diversifying production. We must move away from a costly system that fails to stabilise the market, is doing little to serve producers and is certainly not serving consumers.
We would do well to recycle some of the savings from abolition into education about the health effects of consuming too much sugar. However, I agree with the committee that health is no reason to continue with the barmy EU sugar regime. I am, incidentally, unpersuaded as yet by the argument for using tax in this area, as the noble Baroness, Lady Parminter, argued, given the comments that we have already made about consumer pricing.
We would do well to ensure that assistance to preferred suppliers works and assist others to follow the Mauritius example and those supported by the Fair Trade Foundation to process more sugar domestically.
Most of all, we must get on with regime change. My one question to the Minister—I promised him only one question—is to ask how likely it is that we will get agreement, as planned, by the end of this month, and whether the Government will stick to their determination to phase out quotas before 2020.
My Lords, I am grateful to the noble Lord, Lord Carter, for instigating the debate, to all noble Lords who have spoken today and to the entire committee for its work on this report.
In responding to the noble Lord, Lord Carter, and others, perhaps I may begin with an abject apology for the delay in sending the Government’s response to the committee. My honourable friend David Heath has written to the noble Lord, Lord Carter, and to my noble friend Lord Boswell. However, I would like to make clear that the delay was unsatisfactory and that we need to do better in future. I should also emphasise that this episode in no way reflects on the Government’s appreciation of the committee’s work or of the report. Indeed, I find myself in the happy position of being able to say that the Government agree with the vast majority of the report’s recommendations.
It has, of course, been, as noble Lords have said, some time since the report was published. In the mean time, the common agricultural policy reform negotiations have continued, albeit slowly, and it may help if I recap the main developments.
The Commission’s proposal in October 2011 included very little on sugar. This reflected the intention not to re-enact quotas when they expire under current legislation in 2015. In fact, there was very little discussion on sugar for the first year of the negotiations. When the EU Council of Agriculture Ministers and the European Parliament concluded their separate discussions on the issue in March this year, the focus was very much on the future of beet quotas, and two different visions of the future emerged. As the noble Lord, Lord Carter, said, the Council took the view that quotas should be extended to 2017 but no further. This reflected a compromise between two broad groups. In the main, those member states that currently have a beet quota wanted to retain it, while those without a quota supported the early abolition of quotas. The European Parliament, too, had internal divisions, but eventually concluded that beet quotas should be extended until 2020.
The noble Lord, Lord Carter, and my noble friends Lady Parminter and Lady Byford asked about our view on the timing of the end of quotas, as did the noble Lord, Lord Knight, in his final question. The Council mandate is for quotas to end in 2017, and the European Parliament has voted to keep quotas to 2020. Those two dates represent the starting point for the negotiations, and we remain optimistic about which end of the range we will end up at.
The noble Lord, Lord Carter, asked how influential we have been in the negotiations on the CAP. Our support was key in ensuring that the Council reached agreement on a 2017 end date. More widely, we have seen successes in stopping excessive coupled payments and in allowing the four parts of the United Kingdom to make their own decisions on implementing the agreement.
The next step in the process is the so-called trilogue negotiations between the Irish presidency, on behalf of the Council, the European Parliament and the Commission. Those negotiations are ongoing and any agreement between the parties on sugar is now likely to occur in the context of an overall agreement on CAP reform. As the committee heard when the Secretary of State appeared before it on 15 May, much remains to be done to secure that agreement. However, we are still optimistic that, under the able chairmanship of the Irish Agriculture Minister, Simon Coveney, a deal will be struck by the end of June.
For our part, the UK Government have done, and will continue to do, all that we can to promote the liberalisation of the EU sugar regime in respect of both beet and cane, and I thank the committee again for its report as adding weight with the Commission to that argument. We do so for good reason. EU market prices have consistently been at least 50% above world market prices for the past few years, a level of distortion not seen in any other CAP regime. That distortion arises from both production quotas for EU beet and very high tariffs on imports of cane. As a result, wholesale sugar prices for EU food and drink manufacturers have been inflated by around 35%, while EU consumers have suffered a 1% increase in the overall cost of the average food basket. At the same time, producers in many poorer countries find it difficult to market their sugar in Europe, as the noble Lord, Lord Knight, mentioned. That hinders their economic development, and undermines to some extent the EU’s own aid programmes to these countries.
Abolishing beet quotas would be an important step towards removing current market distortions. It is disappointing, therefore, that the Council could not agree with the Commission’s proposal in this respect. We do not wish to see any further delay beyond 2017. However, even more disappointing is that neither the Council nor the European Parliament has addressed the need for additional measures on cane imports. The very high tariffs that apply have an even greater distorting effect on the market than beet quotas. The exemptions from those tariffs for African, Caribbean and Pacific states and less developed countries are valuable, but the supply from those sources is less than was anticipated at the time of the last reform. That has left the market with a shortage of sugar and idle capacity in EU refineries, which is putting their future viability under threat.
The abolition of beet quotas would ease the supply shortage, but would also increase the risks to the viability of the refining sector, as market prices are expected to drop while the cost of their raw material remains high. Losing the refining industry would reduce competition and introduce food security risks to the EU market. It would also lead to job losses, including at the Tate & Lyle factory in London, and threaten the livelihood of growers of cane in developing countries that currently supply EU refineries.
The Government will therefore continue to seek fair treatment for cane refineries as the CAP reform negotiations progress. The focus in the negotiations on beet quotas has also meant that there has been relatively little discussion on inter-professional agreements, or IPAs. As touched on during the debate, IPAs govern the contractual relationship between beet processors and growers and have traditionally been valued by both parties.
The Commission’s proposals contain different wording to that in current legislation and, as indicated in the debate today, this has caused some concern whether the intention is to change the ground rules. We hope that the Commission’s own response to the committee’s report will provide some reassurance that there is no agenda to weaken the negotiating position of growers. However, this is something that we will pay close attention to as detailed rules are drawn up.
I will now answer noble Lords’ questions to the best of my ability. To start with, in response to the noble Lord, Lord Carter, as the Secretary of State explained when he appeared before the committee, a great deal of effort has been put into developing relationships and building alliances. Noble Lords would not expect me to go into detail about our negotiating tactics, but every opportunity is being used to build on that groundwork so as to make the case for further liberalisation while accommodating other views where possible. That approach bore fruit in securing the agreement to a 2017 end date for quotas as part of the council mandate, and we should be defending that agreement very strongly for the remainder of the negotiations.
The noble Lord, Lord Carter, asked how we could achieve 2017 without financial compensation. We have strong support from some in the Council for the end of quotas. We are optimistic that the agreement will stick. We have not seen requests for compensation from other member states, and do not see a case for that. Compensation for less developed countries is another matter, and measures can be considered within the context of the European Development Fund.
The noble Lord, Lord Carter, and my noble friend Lady Parminter asked about work by the competition authorities. As indicated in the Government’s response, the EU competition authorities, supported by the OFT, are undertaking an investigation and we would prefer to see that completed before considering further reviews.
My noble friend Lord Caithness suggested that we have relaxed our demand for an end date for quotas to 2017. We argued strongly for 2015 but there was very little support in Council. In a negotiation with 26 other member states some compromise has to be made and, with Germany, France and others pushing for 2020, an end date of 2017 was a relative negotiation success.
The noble Lord, Lord Carter, asked for an update on the state of play on risk management discussions in the CAP negotiations. The past 18 months have been very challenging for farmers, with some difficult weather conditions such as late snow, even as recently as Easter, as noble Lords will know. The Government are therefore considering how best to support farmers to manage risks. The rural development regulation offers opportunities for supporting risk management. For instance, the proposed risk management toolkit, if used, could provide subsidies for agri-insurance and mutual funds. However, consideration should be given as to whether subsidies in this area are permanent or temporary and to what degree these sorts of products are needed by farmers in the United Kingdom. As the toolkit is in Pillar 2, using it would mean there would be less money available of course for other Pillar 2 activities and priorities.
The UK is opposed to the income stabilisation tool proposed by the Commission. We are concerned that it is unstable and unpredictable. In any case, the countries that use such tools, such as Canada, have them instead of direct payments, not in addition. We should not focus solely on the risk management tools set out in the Commission’s proposals that directly address risk management in the rural development regulation. There are other activities enabled by the rural development regulation that can be used to support farmers to manage their risks, for example by enabling them to make investments in physical assets which help to mitigate some of the risks that they may face. The development of the next English rural development programme is under way and Defra is building an evidence base. We will be considering the objectives and priorities for funding through the next programme based on that evidence and the objectives for rural development set out in the draft EU rural development regulation.
The use of tools available under the rural development regulation is only one of several options. We are working with industry, the financial sector and charities to consider what might be done. We will meet again with their representatives in July to look at the impact of recent bad weather on farming cash flows. There is a frost insurance scheme and a private sector scheme for sugar beet. There is a market for such schemes without public money.
My noble friend Lady Byford asked how the ACP and less developed countries could be helped to stand on their own two feet. There are a number of factors holding less developed countries back, including economies of scale, infrastructure and skills at both farm and processing level. Solutions need to be tailored to the specific national problems, which is being done under the accompanying measures for the last reform, albeit too slowly. My noble friend asked which countries have received assistance and how it is being disbursed. I think the noble Lord, Lord Carter, asked about that too. The main beneficiaries have been Kenya, Mozambique, Ivory Coast, Swaziland and Tanzania. My understanding is that of the £1.2 billion intended for accompanying measures, some £0.95 billion has been awarded, of which £0.5 billion has actually been paid. My colleagues in the Department for International Development are pressing the Commission on that slow disbursement.
My noble friend Lady Byford and the noble Lord, Lord Carter, also asked why, if sugar prices have declined for the producer, consumers are paying more in real terms. Available data suggest that retail prices did not fall in line with the cut in EU prices following the last reform. Sugar users contend that this is attributable to generally rising costs within the supply chain, for example, energy and labour. However, others have questioned the extent to which sugar users have been able to capture the price cuts and not pass them on to consumers. As indicated in the government response, the European Commission authorities are making inquiries into alleged anti-competitive practices, which may throw some light on this area.
My noble friend also asked whether the use of the term “inefficient” to describe the production systems in some countries is a reference from a grower’s or a refiner’s viewpoint. It is generally meant to refer to those countries or regions whose growers have the lowest yields.
My noble friend Lord Caithness asked whether the EU study results expected in February have come in yet and what they are. I am afraid that the results of this study have not yet been published. We are as keen as your Lordships to read it and engage with the Commission on how any conclusions can be taken forward. We will ensure that the committee is made aware of the study’s results when they are published.
My noble friend Lord Caithness also asked about mandatory written contracts. The Government are sympathetic to the concerns that he referred to in the context of interprofessional agreements. The issue, as I understand it, is not so much about what is in the Commission’s proposals but about what might be introduced in the detailed rules that will follow. While wishing to see normal competition principles apply as far as possible, the Government are also mindful of the need not to unbalance the legal framework governing the relationship between growers and processors. When it comes to negotiations on the Commission’s detailed rules in due course, the Committee may be assured that we will consult all interested parties to identify whether any issues arise in practice.
My noble friend Lady Parminter asked whether the Government have any plans to look at the role that fiscal incentives can play in shaping positive food choices. We keep all evidence on the impact of taxation on promoting healthier food choices under review. We believe that the voluntary action that we have put in place through the public health responsibility deal is delivering results; 33 companies have signed up to pledge to help the population reduce their calorie consumption. I argue that this is the right way forward, but I emphasise that we are not complacent and we are clear that this is something for all food businesses, not just some. If we do not get continued progress, we will have to consider alternative approaches.
In conclusion, there is much that the Government and the committee can agree upon, including support for genuine CAP reform that removes distortions from the market and delivers real benefit to consumers and producers, a desire to see strong, competitive beet processing and cane refining industries in the United Kingdom and appropriate safeguards for producers, both in the UK and in developing countries. We will continue to make the case for that vision in EU and other international negotiations. The committee’s continued interest and contribution to the debate would be most welcome.
I thank all noble Lords for their contributions. We have had an interesting debate that, as the noble Earl, Lord Caithness, said, has come at a crucial time. The critical thing about these reports is to be able to make the point while the negotiations are taking place.
We have all sensed the great loss that we all felt because the noble Baroness, Lady Byford, could not contribute, and in this debate her incisiveness and her fact-packed contribution brought evidence of that. In my experience the noble Earl, Lord Caithness, always seems to have the knack of zeroing in on a key issue and then helping us along a little with a reminiscence of somewhere such as Romania, which is always very much appreciated. The balanced view of the noble Baroness, Lady Parminter, of the needs of consumers in terms of price but also in terms of welfare and health was a perfectly fine contribution to this debate. I very much welcome the intervention from the noble Lord, Lord Palmer, who made his point so strongly.
I thank the noble Lord, Lord De Mauley, for setting out the views of the Government. It is nice that we are all in so much agreement on what needs to be done, and we appreciate how difficult it is for the Government to exercise their point of view in these very difficult negotiations. I speak for us all in saying that we are grateful for the fulsome apology that he was able to make on the late response.
We should hope that the Government are now successful in their attempts to work with EU partners to renegotiate the sugar terms. Clearly, the position of the French and Germans—the great barons of the industry, if you like—makes it very difficult, and we should offer every support that we can to ensure that the next seven years, in terms of everything that we want to see happen, are somewhat more productive than the previous seven.
Turning to my chairmanship of sub-committee D, I have done this for the past four Sessions. For me, at least, it has been a delight. We have had some really focused and productive times, and generally I believe that they have been happy. That has been a hallmark of our committee. That has been wholly due to the committee’s members, and we have been extraordinarily fortunate in the composition of our committee. I also record our thanks to our successive clerks: Paul Bristow, Kate Meanwell and Aaron Speer. Running through it, we have been fortunate to have the same golden thread of our researcher, Alistair Dillon, who has been absolutely tremendous.
A further delight to me is that the noble Baroness, Lady Scott of Needham Market, has taken over as the chair of the committee. I have no doubt that it will be as fulfilling for her as it has been for me. I beg to move.
Motion to Take Note
Committee adjourned at 7.10 pm.